Could the manufacturers of DVD players (no, not just Blu-ray, but the original DVDs) owe back royalties to Alcatel-Lucent for the use of patented technology by way of the MPEG-2 codec? The MPEG Licensing Authority had asserted that Alcatel may have structured its 2006 merger with Lucent in such a way that it could hide up to five patents in a special trust, and spring their overdue royalties on the video industry long after DVDs already began the march to obsolescence.

That assertion was being made in a Delaware courtroom earlier this month, in a trial pertaining to a lawsuit filed by the MPEG Licensing Authority back in 2007. Today, MPEG LA — which also collects royalties for the use of MPEG-2 — announced a settlement in the case, essentially amounting to a complete defeat for Alcatel-Lucent.

The five patents that Alcatel-Lucent had maintained in what it called the Multimedia Patent Trust (MPT), will now be submitted to MPEG LA with the possibility of inclusion in the portfolio it already licenses to manufacturers — and by “possibility,” we mean, virtual certainty.

The settlement brings to a close a dispute which threatened to get ugly, over the intellectual property rights for a relatively old — and many would argue, antiquated — way of encoding video. The dispute began when Microsoft, along with computer makers Dell and Gateway (now part of Acer), were first sued by the newly merged entity on behalf of the former Lucent. Alcatel was (and still is) a member of MPEG LA itself, but Lucent was not. At the time, Alcatel-Lucent maintained it set up the trust in order to protect patents from Lucent’s old Bell Laboratories portfolio, that it asserted had not been folded into the MPEG-2 Essential Patents portfolio of MPEG LA.

“The MPT was established at the time of the merger in 2006 because Lucent Technologies had certain patents at risk of losing value because of how the merger was structured,” reads a statement from Alcatel-Lucent General Counsel Steve Reynolds ten days ago. “To preserve their value over the life of the patents, Lucent created the trust and assigned those patents to it. The trust now owns and controls those assets. Proceeds from the trust go to Alcatel-Lucent and the Alcatel-Lucent Foundation.”

At the time the computer and software makers were sued, the total valuation of the suit was estimated at over $2 billion. But even the amount has been a matter of dispute, especially since a San Diego district court judge ruled in 2008 that the patents in this case were essentially…non-essential. That devalued them at the same time it appeared to indicate they did not belong in MPEG LA’s “Essential Patents” portfolio.

Referring to a correction that Bloomberg News had to make in a report earlier this month, Alcatel-Lucent’s Reynolds added, “Because the San Diego court determined that the patents were not infringed, and therefore were not essential, we do not see how MPEG LA could claim rights to these patents under any circumstances. Our understanding is that MPEG LA claims to have rights to essential patents. By court determination, the MPT patents in the San Diego lawsuit simply don’t meet that requirement. That should have been the headline, not a sensational number about a bogus and non-existent risk.”

Testimony in the trial was already drawing to a close. In a statement to Betanews this afternoon, MPEG LA said, “The resolution of the case is consistent with the relief MPEG LA sought in its complaint.”